Acclimatise kick-starts new project with Mexican banks by discussing how financial institutions can align their governance and risk management structures to the TCFD Recommendations

Acclimatise kick-starts new project with Mexican banks by discussing how financial institutions can align their governance and risk management structures to the TCFD Recommendations

By Laura Canevari

The Inter-American Development Bank and the Mexican Banking Association (ABM) have established a Climate Risk Capacity Building Program aimed at strengthening the institutional and operational capacity of Mexican banks to identify and manage climate, environmental and social risks. Within this program a new stage started with the objective to analyse the gaps in governance systems and in the management of climate, environmental and social risks in Mexican banks in relation to the TCFD recommendations.

The specific objectives of the project are to:

  1. Provide knowledge about the main international trends and practical examples of banks that are aligning with these regulatory and/or voluntary trends.
  2. Identify, through an international benchmarking exercise, best practices in governance  within banks in Latin America and the Caribbean that are sustainable finance leaders in their context of operation and/or “early adopters” of the TCFD’s recommendations.
  3. Develop a tool for the identification and analysis of EC&S governance structures and practices for the management of climate, environmental and social risks within banks in Mexico. The tool will allow the self-evaluation by banks of their performance regarding the implementation of TCFD’s recommendations for governance and climate risk management, as well as comparison with peers. Easy to use and accessible to all interested banks, the results of its application will allow the analysis of existing gaps, the identification of short and medium-term objectives and the visualisation of progress made in the implementation of TCFD’s recommendations.
  4. Use the tool to evaluate the performance of a sample of 3-5 Mexican banks in terms of governance and practices for the management of climate, environmental and social risks.
  5. Facilitate a training workshop with member banks of ABM and other interested banks where the tool and its possible applications will be presented, along with anonymous results of its application to those involved. A series of group exercises will be organised to analyse the main gaps and discuss possible barriers and enablers for climate risk management in Mexican banks. The workshop will also enable the elaboration of “road maps” for TCFD implementation through the identification of objectives, activities and timelines with respect to each criterion.

As part of this initiative, Acclimatise representative, Laura Canevari, was invited to present at a workshop organized during the XIV Symposium on Risk Management, held at the Hilton Reforma in Mexico City on the 29th of May. Here, she introduced the recent outputs from the UNEP-FI First pilot project with the banking sector on TCFD Implementation, and reflected on climate risks and opportunities best disclosure practices from around the world.

During the workshop, representatives from different financial institutions within the country engaged in dialogue to explore examples of governance and risk management systems for socio-environmental and climatic risks, and to learn about practical cases, tools and international reference frameworks that can help them pave the way to TCFD aligned disclosures.

Opening remarks from Rafael del Villar Alrich, Governance advisor of the Bank of Mexico (one of 36 financial institutions in the Network for Greening the Financial System Initiative) were complemented by presentations from ABM, Banobras, Bancolombia Banamext as well as CEBDS Brasil and GIZ.  As noted by Alan Gómez Hernández, Sustainability committee Coordinator from ABM, , climate change needs to be regarded as a fundamental issue impacting the private sector: A business topic with potentially significant positive and negative repercussions.

As noted by Virna Gutierrez (Banobras), these issues need to be recognised and tackled at high levels of governance within banks, with the support of risk management systems that can support the identification and evaluation of policies to mitigate potential risks and pursue potential opportunities. Steps are being taken to make this possible. In South America, for example, Bancolombia has recognised the role it has to play in financing the transition to a low carbon economy, with a well-established climate policy to inform their strategy. They are also active players in government conversations and have a very cohesive internal group within the bank that works to advance sustainability and climate risk management issues and engages directly with potential clients to foster the development of their green bonds and credit lines. These activities are all reported to the board of directors, which has established a target of US$10bn in climate investments by 2030.

The Mexican banks are also taking steps forward. Banamext SARAS (Sistema de Gestión de Riesgos Ambientales y Sociales) system, for example, establishes a comprehensive management framework that includes policies, procedures, tools and internal dissemination actions as well as training needs in order to identify, supervise and manage the exposure that the bank may have against potential environmental and social impacts within the credit allocation process. Similarly, they have also developed a self-assessment tool (MEDIRSE): A methodology to determine the impact of risks relating to social aspects of energy investments, in accordance with Bancomex’s due diligence process and SARAS system.

In addition, innovative collaborations are fostering the development of instruments that help Mexican banks better incorporate social, environmental and climate risks in their governance structures and that facilitate the alignment with the TCFD Recommendations. Such is the case of an initiative established by the Deutsche Gesellschaft für Internationale Zusammenarbeit’s (GIZ’s) Emerging Markets Dialogue on Finance (EMDF) Initiative, with the support of the University of Cambridge Institute for Sustainability Leadership’s (CISL’s) Centre for Sustainable Finance, the Instituto Tecnológico Autónomo de México (ITAM) and Banco de México. The project aims to empower financial institutions across the banking, insurance and asset management sectors and to promote the integration of environmental scenario analysis into practice in financial decision making.

Whilst Mexican banks acknowledged the challenges of incorporating social, environmental and climate risks and opportunities within their governance and risk management systems, it remained clear that banks should embark on this process now (if they have not already). The process and outputs generated through the newly established Inter-American Development Bank project working with the Mexican Banking Association are designed to provide the required support.

Cover photo by Asociación de Bancos de México ABM

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